What Happens When a Lender Calls on a Personal Guarantee in Ontario

For most business owners, a personal guarantee is a document signed once, at the excitement of getting financing approved, and then filed away and forgotten. It resurfaces at the worst possible moment: when the business falls behind and the lender decides to collect from the guarantor directly. Knowing what that process actually looks like — before it happens — makes it far less disorienting if it does.

This article walks through what typically happens when a lender calls on a personal guarantee in Ontario, from the first default to enforcement, and what a guarantor's realistic options are along the way.

Step 1: The Business Defaults

The process starts with a default under the loan or credit agreement between the lender and the business — most commonly missed payments, but it can also be triggered by breaching another term of the loan (a financial covenant, for example). At this stage, the lender's focus is usually still on the corporation, not the guarantor.

Step 2: The Demand

Once the lender decides to act, it typically sends a formal demand letter — first to the business, and then, if the debt remains unpaid, to the guarantor(s). The demand letter usually specifies:

• The amount claimed to be owing.
• A deadline to pay.
• A statement that the lender will pursue further legal remedies if payment isn't made.

Whether the lender must first try to collect from the business before demanding from the guarantor depends heavily on the wording of the guarantee itself. Some guarantees are drafted so the lender can demand from the guarantor immediately upon the business's default, without exhausting remedies against the corporation first — read your specific guarantee to know which kind you signed.

Step 3: What the Guarantor Can Do at This Stage

Receiving a demand is not the same as a judgment. A guarantor at this stage generally has a narrow but real window to:

• Confirm the amount claimed is accurate and matches the guarantee's terms and cap (if any).
• Negotiate directly with the lender — a payment plan, a partial settlement, or more time is often on the table before litigation starts, because lawsuits cost lenders time and money too.
• Get legal advice on whether the guarantee itself has any weaknesses (for example, whether it was properly signed, whether it covers this specific debt, or whether it expired or was released).
• Assess personal exposure — what assets, income, or jointly held property could realistically be at risk.

Step 4: Litigation, If the Demand Isn't Resolved

If the guarantor doesn't pay and no settlement is reached, the lender's next step is typically a lawsuit against the guarantor personally. If the lender obtains judgment, it can then use standard civil enforcement tools available in Ontario to collect, which can include garnishing wages or bank accounts, registering the judgment against real property, or seizing certain non-exempt assets — the exact tools and timing depend on the guarantor's circumstances and the size of the debt.

Step 5: Multiple Guarantors

Where more than one person signed the guarantee, they are commonly jointly and severally liable, which means the lender can pursue any one guarantor for the entire outstanding amount, not just a proportional share — leaving that guarantor to seek contribution from the others separately, if they can.

What a Guarantee's Wording Can Change

Not every guarantee behaves the same way once a default happens. Before assuming the worst, check:

• [ ] Is there a dollar cap, or is the guarantee unlimited?
• [ ] Does the guarantee require the lender to pursue the corporation (or realize on its collateral) first, or can it come straight to you?
• [ ] Is it a "continuing" guarantee covering more than the original loan, or limited to one specific debt?
• [ ] Has the guarantee ever been formally released or replaced by a later document?
• [ ] Is there a co-guarantor who shares the exposure?

Frequently asked questions